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Ali could buy a municipal bond with a coupon of 5.00% or a corporate bond with a coupon of 7.00%. His marginal tax bracket is
Ali could buy a municipal bond with a coupon of 5.00% or a corporate bond with a coupon of 7.00%. His marginal tax bracket is 35% and his average tax rate is 23%. What is the after-tax return on each bond? A. The after-tax return on the municipal bond is 3.25% and the after- tax return on the corporate bond is 4.55% B. The after-tax return on the municipal bond is 5.00% and the after-tax return on the corporate bond is 8.06% C. The after-tax return on the municipal bond is 5.00% and the after-tax return on the corporate bond is 4.55% D. The after-tax return on the municipal bond is 5.00% and the after-tax return on the corporate bond is 7.00% QUESTION 25 As a general rule, if you have a choice between contributing to a Traditional 401(k) plan or a Roth 401(k) plan and you think that your marginal tax rate will be higher in the future. A. You should invest in a Traditional 401(k) plan because withdrawals after age 591/2 are tax free. B. It does not matter which 401(k) plan you choose since they are virtually the same. C. There is no advantage in using 401(k) to save for retirement. D. You should invest in a Roth 401(k) and forego the tax deductions on contributions. E. You should invest in a Traditional 401(k) plan to take advantage of the tax deductions on contributions
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